On 1 January 1, 20x9 Brix Co entered into an agreement to lease a machine...
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Accounting
On 1 January 1, 20x9 Brix Co entered into an agreement to lease a machine that had an estimated life of five years. The lease period is also four years at which point the asset will be returned to the leasing company. Brix Co is required to pay for all maintenance and insurance costs relating to the asset. Annual rentals of $10,000 are payable in advance from January 1, 20x9. The machine is expected to have a nil residual value at the end of its life. The machine had a fair value of $35,000 at the inception of the lease. The lessor includes a finance cost of 10% per annum when calculating annual rentals. a) How should the lease be accounted for in the financial statements of Shrub for the year end 31 December 20x9? (14 marks) b) Record the journal entries for the lease (2marks)
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